AMEX Marketing Director Discusses Growth of Sub-Advised Funds

Andrew Washburn is director of marketing for American Express Funds. He joined the firm last January, after four years with Putnam and 10 years at MFS. In the past year he has helped launch Partners, American Express's new sub-advised fund line, as well as further develop its existing line of funds. Washburn discussed the evolution of American Express's offerings and the year ahead with Mutual Fund Market News reporter, Tamiko Toland.

MFMN: Tell me about your first anniversary at American Express.

Washburn: It has been, I would say, a very productive and dynamic year. For us, it's been a year of a lot of building. We've launched a number of new products this year, a new brand of mutual funds, some wrapper products, and we've introduced some new marketing programs into our advisor force. I think that going into next year, these efforts are going to begin to turn into even better business results than we've seen this year.

MFMN: What's your main focus going to be in 2002?

Washburn: 2001 was really spent around the Partners brand, which is the sub-advised family of funds. We launched six funds in 2001 and we've just filed for two more to be launched in the first quarter of 2002. We also spent effort launching a 529 plan and a donor-advised program, so heading into 2002, we're looking to do a couple of things. One is to continue to expand on the Partners product line. We think, by the end of the year, we'll have three or four Partners funds [in addition to the two in registration], bringing the Partners product line, at the end of 2002, to somewhere between 10 to 12 funds and we think we're going to have $1 to $1.5 billion of assets. We're also going to be putting some focus around the AXP fund family, the in-house managed fund line. We've already filed for three products to be launched in the first quarter under the AXP brand.

I think the robustness of our product development efforts for 2001 are clearly going to carry us through 2002. Our advisers that we distribute through today are asking for that. They want more choice of product with American Express. They want more range of product within style categories, so we're trying to meet those expectations.

The third focus for us this year, similar to a lot of our competitors, is going to be around the IRA rollover market. That is an extremely attractive and growing market for mutual fund providers and we are going to be putting much more marketing emphasis around that and integrating some of our efforts with our institutional group to cross-sell across institutional relationships and try to retain and capture additional rollover assets.

MFMN: What concepts or initiatives did you bring with you?

Washburn: [What I call] the product line rationalization was something that I brought with me and has worked with similar work I've done with prior experiences. That, I think, has really put a lot more focus and a lot more vigor around our own product line management, which is something we really didn't have before.

MFMN: What is the rationalization?

Washburn: We've got 53 funds today, and what we're trying to do is create more discipline around the management of these funds. We're trying to get them to be differentiated within their categories from each other and from our competitors. We're trying to make sure that these funds are managed to style-specific benchmarks and have tighter risk controls around them. We want the positioning of the funds that we go out into the marketplace with much clearer so our advisers, when they're looking to use American Express, have a much clearer understanding of each fund's goals and objectives.

We had products that really were just manager-driven products. They had very little process and discipline around them. I don't mean that in a negative way, but it was hard for our clients to differentiate between our three large-cap growth funds, for example. Now what we've done is create some differentiation in how they're managed and translated that into more distinct marketing messages around the products.

It's not only cleaned up the existing funds; but it's created some space for us to launch some additional products because we've got less gray area between categories.

MFMN: As far as the general concept of using the outside managers in the Partners line, do you feel that your experience working at Putnam and MFS has helped you provide a different perspective than what existed at American Express before you got here?

Washburn: I had very limited experience [working with sub-advisors], and so for me it's been a learning experience in evaluating and picking sub-advisors. It's been a learning experience in monitoring their performance and developing a lot of the checks and balances we need to develop around sub-advised performance because our mutual fund board is responsible for these products. But a lot of the relationship skills I had working with outside relationships both at Putnam and MFS proved to be valuable now in dealing with outside money managers that are representing our proprietary products.

MFMN: How long do you think it's going to be before you figure out how best to deal with the sub-advisors?

Washburn: I think 2002 is the year where we really need to have a well-run model in place for how we run this business. That's a broad sweep. What that entails is marketing, relationship management. It requires us to make sure that we are monitoring the performance of our sub-advisors and are keeping the communication open and are making sure that our sales force is equipped to represent the sub-advisors.

That we're linking these outside fund families or managers into the American Express proprietary brand is something that we're continuing to build out. I look at 2002 as really being a year where we need to get this model to be run smoothly, where we need execution to be flawless, and that we can use it as a year to build on more sub-advisor relationships in 2003 and 2004 as the product line expands.

MFMN: As far as new products, in what direction are you going? Do you feel that you have gaps all over the place, or are there certain areas that you need to focus on?

Washburn: Among our own funds, we're light in the value space. We today have two proprietary-run or in-house managed value products. In fact, we've filed for first quarter next year a mid-cap value product ... so we'll have three value products in the first quarter managed in-house as part of our value capability, but it's clear that we need more resources there. We'd like to have additional portfolio managers and research help to begin offering additional products.

We're light in the small cap space as well. Our research and portfolio management have really historically been biased towards large cap and, as I said earlier, more towards the growth side.

We hired a new chief investment officer in September. He's been on board and is quickly making assessments about the competencies that we have in the investment side and I think looking to aggressively add to talent. One of the areas I think will be value and in small cap; we're really relying on him to help build that competency out with us so we can begin to offer some additional products.

The third area is on the international side. It's a fairly small business for us asset-wise. Retail assets are about $2.5 billion. We have five international and global products and would clearly like to do more. We think that, while demand has been weak this year, over time, that has been a very attractive and viable asset class and we need to be strong in that capability, so I think you'll see us do more there.

On the fixed-income side, we've got a good product line. It's a little bit light in terms of number of products and what you'll see there is we'll probably be building out some additional fixed income products in categories that may be obvious to some fund firms but lacking in ours.

The strategy with partners is really to try to begin building the product line in areas where we may be weak with our own internal funds. Those categories I just mentioned to you are in fact the areas where we populate our Partners funds. We have today three Partners value funds, two Partners international funds, and one Partners small-cap growth fund.

The idea is that we want to run these two product lines parallel to one another. Our advisers want a choice and a range of products with American Express, so our ultimate goal is to offer them a choice of a deep bench of AXP funds and we also want to eventually offer them a deep bench of sub-advised funds. If they want to mix and match those funds with their clients, we're okay with that as long as they're recommending American Express products to their clients.